MUTUAL FUND FOLIOS CROSS 21 CRORE BARRIER
From 19.84 Crore mutual folios in July to 20.45 Crore MF folios in August 2024 and now to 21.05 Crore folios in September 2024; it has been a rapid surge. In the last 2 months alone, the MF folios are up by 6.1%. Just to recap, the MF folios are not about unique investors. The total number of unique investors (mapped on unique PAN) is about 5 Crore in India, which is less than a fourth of the number of folios. Folios represent unique mutual fund investor accounts. For instance, if you have mutual fund holdings in 4 different AMCs, then you would have, at least, 4 folios. AUM is great from the perspective of media bytes, but if you want to understand retail spread, it is the number of folios that gives you a picture of the retail intensity of mutual fund flows. That is because, the AUM is not only influenced by the rupee flows, but also by the appreciation of the NAV in tandem with the indices.
While we celebrate the fact that in September 2024, the mutual fund AUM crossed the ₹67 Trillion mark, it is also important to note that the total unique investor folios stand at 21.05 Crore. The folios tend to be concentrated in active equity funds, and to a lesser extent, hybrid fund and passive funds. The number of folios in debt funds are much smaller as the client base is largely institutional. The big story of folio growth has been about the rapid growth in the last 10 years since 2014. For example, as of June 2014, the total number of mutual fund folios stood at just 3.95 Crore. Between 2014 and 2024, the number of folios have grown more than 5-fold to 21.05 Crore folios. That translates into CAGR growth in folios of 18.22% over the last 10 years, which is phenomenal growth.
However, just as we can see the glass as half full, we can also see it as half empty. Let us forget about the 21.05 Crore folios and focus on the 5 Crore unique mutual fund investors. Compare that with the 110 Crore mobile connections, 75 Crore PAN numbers, 70 Crore bank accounts, and over 35 Crore insurance policy holders. Clearly, mutual fund SIPs still have a long way to traverse; especially considering that the first mobile connection came to India almost 30 years the first mutual fund came to India in the form of UTI. In short, the growth in folios has been phenomenal, but we have just about scratched the surface. There is still a huge opportunity lying untapped. That is the good news!
MF FOLIOS: MACRO PICTURE FOR SEPTEMBER 2024
How does the macro picture of mutual fund folio growth look like in August 2024; across open-ended and close-ended funds?
| Macro picture | Total Folios Sep-24 | Total Folios Sep-23 | Folio Growth |
| Open ended Funds | 20,99,75,796 | 15,64,84,087 | 34.18% |
| Closed Ended and Interval Funds | 5,39,888 | 6,12,100 | -11.80% |
| Grand Total | 21,05,15,684 | 15,70,96,187 | 34.00% |
Data Source: AMFI
At a macro level, the total number of mutual fund folios as of September 2024 stood at 21.05 Crore; compared to 20.45 Crore folios in August 2024, 19.84 Crore folios in July 2024, 19.10 Crore folios in June 2024, 18.60 Crore folios in May 2024, and 18.15 Crore folios in April 2024. Each month, the folios have steadily and progressively built momentum, which is a good sign that retail intensity is growing in terms of mutual fund participation. On a yoy basis, growth in total folios for September 2024 stood at 34.00%; compared to 32.60% in August 2024, 31.03% in July 2024, 28.11% in June 2024, 26.19% in May 2024, and 23.94% in April, and 22.04%. The monthly traction on folios is progressively improving on a yoy basis.
However, if the open ended folios have expanded in the month of September 2024 on a yoy basis, the folios of closed ended funds actually contracted. This can be attributed to the falling appetite for fixed term plans (FTPs) in the light of the unfavourable tax treatment of pure debt funds as evidenced in the latest full budget presented on July 23, 2024. However, closed ended folios have become insignificant in the larger scheme of things. Today, if you look at the macro picture, close-ended folios are just about 0.26% of total mutual fund folios.
ACTIVE DEBT FUND FOLIOS UNDER PRESSURE IN SEPTEMBER 2024
Debt fund folios had been under pressure for the last couple of years. Debt returns have been not too attractive due to volatile interest rates and there is no clarity on the trajectory of interest rates. Also, debt fund flows tend to be a little too vulnerable to quarterly advance tax payouts of corporates; which are bunched every quarter. Debt funds, being corporate and institutional products, they do not rely too much on folios but more on revenue per customer. Investors, in recent months, have been gravitating towards the shorter end of the yield curve. For September 2024, the active debt fund folios actually contracted by -3.24%; compared to -3.48% in August 2024, -3.33% in July 2024, -2.69% in June 2024, -1.40% in May 2024, and -0.83% in April 2024.
| Active Debt Funds | Total Folios Sep-24 | Total Folios Sep-23 | Folio Growth |
| Long Duration Fund | 77,892 | 47,417 | 64.27% |
| Gilt Fund | 2,02,816 | 1,80,961 | 12.08% |
| Overnight Fund | 8,59,383 | 7,87,375 | 9.15% |
| Liquid Fund | 18,00,818 | 17,97,810 | 0.17% |
| Ultra Short Duration Fund | 6,39,768 | 6,44,072 | -0.67% |
| Money Market Fund | 4,31,111 | 4,39,558 | -1.92% |
| Medium to Long Duration Fund | 1,02,847 | 1,05,080 | -2.13% |
| Dynamic Bond Fund | 2,20,354 | 2,27,917 | -3.32% |
| Low Duration Fund | 8,36,038 | 9,16,847 | -8.81% |
| Short Duration Fund | 4,39,391 | 4,89,352 | -10.21% |
| Floater Fund | 2,02,562 | 2,28,427 | -11.32% |
| Gilt Fund (10 Y constant duration) | 36,148 | 40,773 | -11.34% |
| Corporate Bond Fund | 5,31,965 | 6,04,977 | -12.07% |
| Banking and PSU Fund | 2,41,073 | 2,74,697 | -12.24% |
| Medium Duration Fund | 2,12,263 | 2,47,469 | -14.23% |
| Credit Risk Fund | 1,90,077 | 2,27,228 | -16.35% |
| Sub Total – Active Debt Funds | 70,24,506 | 72,59,960 | -3.24% |
Data Source: AMFI
What are the key takeaways from a yoy comparison of debt fund folios as of September 2024? Out of the 16 categories of debt funds as per AMFI classification, only 4 categories showed positive growth in folios. Even out of these 4 categories, only 2 categories had double-digit growth in folios, while liquid funds grew at just about 0.17% yoy. The ratio of contracting folios to expanding folios stands at 12:4, tad better than the previous month. The leader in terms of folio growth was Long Duration Funds, at 64.27% yoy, albeit on a relatively smaller base. This was followed by gilt funds growing at 12.08%, on a larger base. Overnight funds at 9.15% and liquid fund at 0.17% were the other two categories of debt funds to show positive growth in September 2024 on a yoy basis.
Contraction in folios was pronounced across credit risk funds at -16.35%, medium duration funds -14.23%, banking & PSU funds at -12.24%, corporate bond funds at -12.07%, and Gilt funds with 10-year constant duration contracting folios by -11.34%. There were 2 more fund that saw double-digit contraction; floater funds (-11.32%), and short duration funds contracting folios at (-10.21%). A total of 7 debt fund categories saw double-digit contraction while 5 debt fund categories saw single-digit folio contraction. Theoretically, investors showed an aversion for funds with allocation discretion. This has been the trend, especially after the Templeton debt fund fiasco of 2020. With the Fed cutting rates by 50 bps, the focus is on whether the RBI will follow suit.
ACTIVE EQUITY FUNDS ADD 4.03 CRORE FOLIOS YOY
While debt fund folio contraction showed ambivalence in folio accretion, the vote was clearly retail positive in equity funds. In September 2024, active equity funds added 4.03 Crore folios compared to September 2023. For active equity funds, the yoy folio expansion for September 2024 stood at 37.7%; compared to 36.4% in August, 35.0% in July, 31.9% in June, 29.6% in May, and 27.1% in April 2024. These folio additions are an outcome of a combination of record SIP flows and robust NFOs across select equity fund categories.
| Active Equity Funds | Total Folios Sep-24 | Total Folios Sep-23 | Folio Growth |
| Sectoral/Thematic Funds | 2,75,28,614 | 1,43,15,827 | 92.29% |
| Multi Cap Fund | 79,88,882 | 48,31,118 | 65.36% |
| Small Cap Fund | 2,23,38,121 | 1,46,84,798 | 52.12% |
| Mid Cap Fund | 1,75,11,890 | 1,19,56,147 | 46.47% |
| Value Fund/Contra Fund | 75,22,759 | 53,08,373 | 41.71% |
| Dividend Yield Fund | 11,03,567 | 7,85,733 | 40.45% |
| Large & Mid Cap Fund | 1,06,06,224 | 82,99,513 | 27.79% |
| Flexi Cap Fund | 1,60,36,032 | 1,31,61,385 | 21.84% |
| Large Cap Fund | 1,48,91,416 | 1,30,47,923 | 14.13% |
| ELSS | 1,66,25,720 | 1,54,23,310 | 7.80% |
| Focused Fund | 50,96,721 | 51,59,456 | -1.22% |
| Sub Total – Active Equity Funds | 14,72,49,946 | 10,69,73,583 | 37.65% |
Data Source: AMFI
In September 2024, a total of 10 out of the 11 categories of equity funds saw accretion in folios. That is a strike rate of 91%; a figure that has been static over the last 8 months. The only equity fund category to see contraction in folios in September 2024 was focused funds, with folios shrinking by -1.22%. If you look at the big folio growth story, it was once again dominated by sectoral / thematic funds; which is not surprising with most of the NFO flows in recent months being concentrated there. In terms of folio growth, the sectoral / thematic funds were followed by multi-cap funds, small cap funds, mid-cap funds, and Contra Funds in that order. The top 5 folio gainers have been the same over the last 3 months. The good news is that; retail investors have not lost their appetite for small cap and mid-cap funds.
The big growth stories in terms of equity fund folios were sectoral / thematic funds at 92.3%, multi-cap funds at 65.4%, small cap funds at 52.1%, Mid-Cap funds at 46.5%, and value / contra funds at 41.7%. The improved ranking of thematic funds started in May with the NFO of HDFC Manufacturing Fund, and has sustained since. There is a regulatory loophole here. An AMC can only launch only one large cap, mid-cap, or small cap fund. However, there is no such restriction on sector funds, thematic funds, and index funds; as long as they are intrinsically distinct. That explains why NFOs gravitate towards index and sectoral / thematic funds. Once again, as in recent months, the multi-cap growth has dominated flexi-cap growth; indicating that investors still prefer a rule based allocation approach rather than pure discretion.
HYBRID FUNDS ENCORE – ONCE AGAIN, IT IS 100% STRIKE RATE
Hybrid funds and solution-based funds combined have all shown yoy growth. Multi-asset allocation funds lead the pecking order, but other allocation funds are seeing traction too.
| Hybrid / Solution Funds | Total Folios Sep-24 | Total Folios Sep-23 | Folio Growth |
| Multi Asset Allocation Fund | 25,96,723 | 14,15,518 | 83.45% |
| Arbitrage Fund | 5,51,949 | 4,51,213 | 22.33% |
| Equity Savings Fund | 4,50,253 | 3,75,920 | 19.77% |
| Dynamic Asset Allocation / BAF | 49,21,853 | 43,41,033 | 13.38% |
| Retirement Fund | 29,57,658 | 27,99,015 | 5.67% |
| Aggressive Hybrid Fund | 55,95,878 | 53,30,143 | 4.99% |
| Conservative Hybrid Fund | 5,51,053 | 5,31,595 | 3.66% |
| Children’s Fund | 30,16,144 | 29,44,907 | 2.42% |
| Sub Total – Hybrid Funds | 2,06,41,511 | 1,81,89,344 | 13.48% |
Data Source: AMFI
All the 8 categories of hybrid funds (including solution funds) saw folio expansion in September 2024; with 4 out of these 8 reporting double-digit folio growth. The best folio growth was once again in multi asset allocation funds at 83.45% yoy despite a fairly large base. Arbitrage funds are emerging as a genuine alternative to liquid funds in HNI portfolios with folio growth of 22.33% yoy. The other allocation segments like equity savings funds saw folios grow by 19.77% yoy; while the dynamic asset allocation funds (BAFs) saw folios accretion of 13.38% yoy. Hybrids like MAAFs, BAFs and equity savings funds are becoming preferred tools of asset allocation for investors; which are tax efficient too due to their 65% equity exposure. This enhances post-tax returns for investors.
Apart from the big 4 hybrid funds mentioned above, other funds have shown single digit growth in folios in September 2024. Interestingly, retirement funds are also seeing strong growth in folios, although that could be attributed to the NFOs in the last one year. For the hybrid category funds overall, number of folios grew 13.5% yoy for September 2024; compared to 13.8% in August, 12.2% in July, 11.5% in June, 10.6% in May, and 9.5% in April 2024. The yoy growth in hybrid fund folios has been progressively getting better although the September growth is lower than the August growth. This can be attributed to a bit of caution amidst rising uncertainties in the global market.
PASSIVE FUNDS ARE STILL THE KINGS OF FOLIO GROWTH
Passive funds added 1.10 Crore folios yoy. Passive category includes equity and debt related index products (index funds and ETFs), apart from gold funds, gold ETFs, silver ETFs, and the international Fund of Funds (FOF).
| Passive Funds | Total Folios Sep-24 | Total Folios Sep-23 | Folio Growth |
| Index Funds | 1,12,33,678 | 53,88,470 | 108.48% |
| Other ETFs | 1,67,28,549 | 1,24,62,054 | 34.24% |
| GOLD ETF | 57,10,499 | 48,06,140 | 18.82% |
| Fund of funds investing overseas | 13,87,107 | 14,04,536 | -1.24% |
| Sub Total – Passive Funds | 3,50,59,833 | 2,40,61,200 | 45.71% |
Data Source: AMFI
For the last many months, passive funds have seen positive folios growth across categories. However, in September 2024, the category of international fund of funds (FOF) saw drop in folios yoy; largely due to the global uncertainty and the restrictions imposed. Despite that; the growth in passive fund folios yoy is the highest among all categories at 45.71%. The Index funds dominated folio growth at 108.48%, followed by index ETFs at 34.24%, and gold ETFs at 18.82% in September 2024. Passive fund folio growth in September 2024 improved further to 45.7%; compared to 42.6% in August, 38.9% in July, 34.2% in June, 32.4% in May, and 29. 6% in April 2024. Once again, folios growth is getting progressively better and that is what really matters in terms of long term sustainable growth of passive funds. In the last few months, passive funds are back in the reckoning in terms of flows; and clearly the passive fund advice of all-time by Jack Bogle still stands out.
What are the takeaways from folio growth story in September 2024? One can say, that the financialization of savings is the real story as evidenced by the robust growth in mutual fund folios of retail investors. This trend is especially true of active equity funds, hybrid funds, and passive funds. Of course, the debt fund folios continue to contract, but that is more of an institutional problem for the time being!